"Certainly rewarding achievement is good, but the disparities in income distribution when taken too far have the potential to distort the economic and social fabric of our societies," McDonough said in a commencement address at Johns Hopkins University's School of Advanced International Studies.

In an admonishment to graduates to work toward an improved society, McDonough noted the wide gap between the rich and poor nations of the world.

"Within the United States, dispersion in income distribution is less dramatic but still very large, and in my view, unsustainable in a democracy," he said.

McDonough said while a free market is the best way to raise standards of living, it is still "very much less than perfect" as an economic model.

"The poor among us live a life that is unacceptable to us all," he said.

McDonough, who steps down from the helm of the Fed's most important regional bank next month, touched only fleetingly on the current state of the economy with a quip on labor market weakness.

"Whether or not you convert this degree into a job offer tomorrow is not the point, although I do recognize that in this job market a job offer would be nice," he said.

More important, he said, was to make a positive contribution to society.

McDonough will assume his next job as chairman of a newly created public accounting oversight board on June 11.